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PACKAGING INNOVATIONS INCREASINGLY VIEWED AS "VALUE-ADDED SERVICE"

This article was originally published in The Tan Sheet

Executive Summary

PACKAGING INNOVATIONS INCREASINGLY VIEWED AS "VALUE-ADDED SERVICE" by retailers looking to build private-label brand loyalty among consumers, Oppenheimer VP-Research Gabe Lowy suggested in his Nov. 15 keynote address to the Private Label Manufacturers Association's trade show in Chicago. Lowy maintained that "packaging, although seemingly part of the product, will take on more of a service orientation as retailers will be seeking suppliers with packaging that sells the product at the shelf while providing the retailer with a differentiated characteristic that can build loyalty to the store." The general "evolution" of the consumer products market, Lowy continued, is "toward turnkey suppliers that can provide the retailer with an array of services that make the product easier to buy and easier to sell." Lowy's comments on the importance of product packaging were based on his belief that "as retailers evolve into the brand marketers of the future, service will become a primary factor differentiating suppliers in their ability to improve the marketing and merchandising efforts and profitability of their retail customers." The service "capabilities of a supplier," the analyst said, "are becoming as important a component in [the supplier's] relationship with retailers as is its product." Lowy suggested that the primary goal of a "branded supplier" should be "driving the volume and profits of the retailer, or the customer." Suppliers who adopt this credo, he predicted, will "ultimately have their volumes and profits driven by the retailers." At an industry conference in October, Lowy had advised manufacturers of branded OTCs to enter the store brand market and become "full-service providers of products" ("The Tan Sheet" Oct. 25, p. 29). Commenting generally on the future of store brands, Lowy painted a rosy picture, stating that "the factors reshaping the consumer products industry" in favor of store brands "should be viewed as permanent." These factors, he elaborated, include a "major shift in consumer purchasing habits" with an "emphasis on measurable value." Consumers have "increasingly been making their purchases at discount stores, which through the implementation of technologies have gained competitive cost advantages over traditional retail formats, enabling them to offer consumers better values," Lowy stated. In addition to greater use of discount stores, Lowy said that the "second measurable comparison of value" available to consumers is "the emergence of national- brand-equivalent store brands at substantial savings." A third factor cited by Lowy is that "retailers are going to continue to hone their technologies," such as inventory management and replenishment systems and shelf optimization programs, "to fully exploit the control they have gained." What national branded manufacturers "are finding so difficult to adjust to," the analyst declared, "is that they no longer control the inventory situation with the retailer, or the shelf facings, or the price of their own products at the shelf. They have relinquished control to the retailer," he asserted. Lowy also pointed out the ongoing "demographic segmentation of the U.S. population." He noted that the increasing diversity of media choices will make it increasingly difficult and costly for traditional national brand companies to reach their audiences." The Oppenheimer securities analyst also commented on Wall Street's growing interest in the private-label area, suggesting that there is an "unprecedented demand for investment opportunities in the store brands industry." However, Lowy cautioned, "Wall Street is a pendulum" and if "all of the analysts and investment bankers make this industry a pressing priority, the market will become overheated and the pendulum will swing back the other way." Therefore, Lowy advised the PLMA audience to "understand your competitive advantages and weaknesses and your position in the marketplace. Know your cost structure and the cost structures of your vendors, if possible. Recognize that a consolidation of the store brands industry is well under way and that not every company will be a winner," he admonished.

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